April 26, 2024

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[THE INVESTOR] Lotte Chemical is slowing down due to decline in demand following US-China trade conflict and burden of expansion, said Hyundai Motor Investment and Securities on Oct. 1, downgrading the recommendation to a “hold” from a “buy” and lowering the target price to 310,000 won (US$278.75) from 480,000 won. 

Its revenue in the third quarter will rise 14.2 percent on-year to 4.6 trillion won while operating profit will drop 25.9 percent to 567.5 billion won, missing market expectations. Declining profits from flagship products polyethylene and monoethylene glycol has dragged down the bottom line. PE in particular is hurt by slow demand from lasting US-China conflict as well as weak Chinese yuan. Continuing expansion of facilities, scheduled to continue until 2020 in the US and Asia, is also taking a toll, said analyst Kang Dong-jin.

Unless there is a turn in the US-China situation, it will not be easy for the industry to recover. What is more important, however, is the prolonged cycle of expansion, said the analyst, adding that investors should approach it conservatively until there are significant changes in fundamentals. 

By Hwang You-mee (glamazon@heraldcorp.com)